Forget Paris, Washington DC is the place to be in Spring. The cherry blossom is beautiful, but the hottest destination is inside, a few blocks from the White House, where you’ll find the headquarters of the International Monetary Fund (IMF) and the World Bank Group. Here, thousands of smart people in smart suits congregate for long days of technical debates about the state of the world’s finances. This may sound like your idea of hell. You definitely need a PhD in acronym soup to go with your economics. But these meetings matter.
Next week’s ‘Spring Meetings’ are particularly important. Not just to prevent recent banking turmoil turning into a re-run of 2008. Also, to bring Governments and financiers together to grapple with current crises, from Ukraine to Sri Lanka (just the economic aspects officially). I’d love to see Lebanon on that list, but the world continues to play ostrich whilst children pay the price. Afghanistan too.
The biggest debate is the future of the World Bank Group. The paper for Shareholders proposes an ‘Evolution’. What others are calling for is a Revolution, not least to deliver on the recommendations of the G20 Expert Group and the aims of Prime Minister Mottley’s inspiring Bridgetown Agenda.
So, here’s my take, as someone who's worked with the Bank for over 25 years, as a shareholder, staffer, colleague and now as a close partner from civil society.
- First, the process to select a new President is unfair. David Malpass will step down on 30th June. It shouldn’t be up to the US to nominate his successor and pretend everyone else has a choice. Frankly, the whole system of international appointments needs reform. The US also chooses the heads of the UN Children’s Fund (Unicef) and the World Food Programme, Europe chooses for the IMF, Japan the Asian Development Bank, China the Asian Infrastructure Investment Bank etc. That said, Ajay Banga’s confirmation looks like a done deal and I was pleased by his instincts when I had the chance to talk to him recently.
- Second, we definitely need a bigger World Bank. In my time on the board, everyone debated the ‘right size’. In a world of polycrises, bigger is better and the 2018 package wasn’t sufficient for new realities. The Bank and IMF play a vital role in unlocking affordable funds for Governments who can’t mobilise enough through tax or via capital markets. Mobilising the full financial firepower won’t be as simple as some assume. I wouldn’t give up the AAA credit rating lightly, and callable capital is a complicated beast. There’s definitely scope to sweat the balance sheet harder, but Shareholders must be ready to inject some serious new capital and replenish the International Development Association (IDA) - the Bank window that provides support to poorer/less creditworthy countries. The IMF also needs a top up to be able to provide more support to poorer countries on affordable terms.[i]
- Third, the Bank must do far more to help tackle the climate emergency. A World Bank without a viable planet is a contradiction in terms. As the latest IPCC report underlines, it’s now or never.[ii] This mustn’t just be for mitigation. Poorer countries that have done least to create this crisis already need massive investments to cope with its effects, from Pakistan’s floods to famine conditions in the Horn of Africa. We aren’t even at 1.5 degrees yet. The Bank must also work smartly with the other Multilateral Development Banks and the Green Climate Fund and harness private sector investment, including via its specialist arms IFC and MIGA.
- Fourth, stepping up on climate change cannot mean stepping down on development. This is why the total amount of resources available must rise. As the Bank’s own research highlights: “COVID-19 dealt the biggest setback to global poverty-reduction efforts in decades …[and] caused a hidden but massive collapse in the human capital of young people at critical moments in the life cycle. The impact was much greater in poorer countries.”[iii] Analysis by Save the Children of current and projected Government spending on health, education and social protection found that it’s increasingly constrained just when more investment is needed (report forthcoming). This threatens to push progress towards the 2030 Sustainable Development Goals even further off track, just as we reach the mid-point review[iv]. Former Bank President Jim Yong Kim pointed out that we could be the generation to end extreme poverty. I’m certainly not ready to give up on that goal.
- Fifth, we need a much more serious effort to address unsustainable debt which is crowding out new investment. As pointed out by the IMF’s Managing Director, “About 15 percent of low-income countries are already in debt distress and another 45 percent face high debt vulnerabilities. As international interest rates rise, this creates even greater risks and restricts fiscal space.”[v] The Bank and IMF work closely together on this[vi] but finding out the true picture is tough – a lot of the most expensive, unproductive debt is not theirs. The Bank has worked hard to maintain net positive flows, and IDA borrowers with unsustainable debt get switched to grants. An IMF scheme provided some temporary relief. The G20 initiative has helped Chad, but Zambia and Ghana are stuck and others seem to have lost faith. This needs a proper solution and cannot just be tackled through bilateral deals.
- Sixth, money is necessary but far from sufficient. The Bank is a bank and it’s for its clients to decide if they want to buy what it’s selling. Greater speed and flexibility will help. Staff incentives also need to be re-weighted from project sign off to end results. This doesn’t mean shying away from tough conversations. The Bank should leverage its full toolkit including policy advice and knowledge products to support countries to achieve systemic change. In crises, the better off are better off. Inequality and discrimination leaves some groups inherently vulnerable, not least the poor and women and girls. Few Governments are living up to their pledge to Leave No One Behind.[vii] I’d love to see a radical push on transparency and accountability too.
Lastly, global progress requires global effort. However good Ajay Banga may be, the new Bank President is just one man. The Bank is also just one part of the international financial system. Many other international organisations and bilateral donors are underperforming or missing in action. For example, the Bank isn’t a humanitarian donor, yet in the absence of others who are, its support to expand social protection and nutrition programmes has probably saved hundreds of thousands of lives during the current global hunger crisis. The new President will need the support of Shareholders to get his reform agenda through. When they have done this, perhaps those same Governments can put their own houses in order.
[ii] https://news.un.org/en/story/2022/04/1115452
[iii] https://www.worldbank.org/en/publication/human-capital/publication/collapse-recovery-how-covid-19-eroded-human-capital-and-what-to-do-about-it See also Poverty and Shared Prosperity 2022: Correcting Course (worldbank.org)
[iv] https://www.un.org/en/conferences/SDGSummit2023
